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On my paid site: Playing the rally in natural gas, and looks ahead at the Fed meeting this week and possible tech earnings disappointments

posted on April 25, 2016 at 7:40 pm
stocks up

On my paid site JubakAM.com I aim for a mix of posts on macro trends and on individual stock picks. It’s a strategy called tactical stock picking.

Today I’ve been looking at last week’s 13% rally in natural gas and picking through the shares of producers and pipelines to see which offer the best upside and when. A lot depends on the weather, I conclude, since the rally seems to be pricing in a hot summer.

And over the weekend I took a look ahead at the Fed’s meeting on Wednesday–an interest rate increase is unlikely I believe but the markets will be looking for any hints about what the Fed will do at its June meeting. And those hints will be enough to move the financial markets.

I also took a look ahead at technology earnings for this week. After easily surviving not as bad as expected bank stock earnings last week, the U.S. stock market showed that it’s vulnerable to disappointments in technology earnings as the NASDAQ index sold off on news from Alphabet, Netflix, and Microsoft. The big tech stories this week are Facebook, Amazon, and Apple (tomorrow, April 26.)

That’s what I’m working on at my subscription JubakAM.com site. I think there’s some value to you in passing on the direction of my thinking about the market on that site. Hope so anyway.

Of course, there’s an ulterior motive to sharing this with you: If you decide that you’d like more of my thoughts on the market in my JubakAM.com posts, I’m hoping that you’ll subscribe to my site at JubakAM.com for $199 a year. (By the way, you can get a full refund during the first seven days if you change your mind for any reason.)

Please don’t overlook today’s post on this free site on why I want to buy Nvidia soon and how I’m trying to get the timing right.

Looking to buy Nvidia but trying to get the timing right

posted on April 25, 2016 at 7:25 pm

I’m going to add shares of Nvidia (NVDA) to my Jubak’s Picks portfolio later this week–as soon as the dust has settled from what is likely to be a disappointing earnings announcement by Apple. (Apple (AAPL) postponed earnings report from today April 25 to tomorrow April 26 so Apple executives could attend the funeral of Bill Campbell, a long-time member of Apple’s board of directors.) Nvidia reports quarterly earnings itself on Thursday, May 5. More thoughts about the timing of this purchase later in this post.

You know Nvidia (NVDA), if you know it at all, as the dominant maker of graphics processors for computer gaming.

That’s one of the few areas of growth in traditional chip markets. It is most recent survey of the markets for chips, Intel (INTC) didn’t find a whole lot of good news to report. PC sales continued to fall in the first quarter and were likely to stay negative for all of 2016. Smartphones, a market that Intel had targeted were showing stagnating sales with 2016 growth looking to be in the single digits. The market for server chips continued to grow but with Intel already owning almost all the market for servers running on PC-style chips, there wasn’t any opportunity to grab market share in that direction.

About the only place that Intel could see room to run was in the market for graphics processors. While the market for PCs was showing negative growth, the market for graphics chips running on platforms that included but weren’t limited to PCs continued to show solid growth. In 2015, Intel noted, the market for high-end Core i7 and unlocked PC enthusiast “K” processors set all all time records for volumes.

Nvidia’s dominance of that market, though, is a kind of two-edged sword. Nvidia has roughly an 80% share of the market for discrete graphics cards for PCs. Which means that not about to grab big share from other players. For growth in this segment Nvidia is pretty much dependent on growth in the market as a whole and on convincing gamers to move up to faster and faster graphics processors. (That’s a GPU as opposed to the CPUs that Intel sells to run PCs and servers and the like.) That’s a challenge but such trends as the increasing complexity and richness of computer games and the introduction of virtual reality technology are flowing in Nvidia’s direction.The company’s GTX 970 graphics card, which sells for $350, is the most popular graphics card on the Steam digital distribution platform for PC gaming. (Steam is the largest digital distribution platform for PC gaming with 125 million active users, according to Valve, Steam’s developer and Gamespot.) Steam has had as many as 12.5 million concurrent users.) And Nvidia’s new Pascal GPU is a beast–65% faster but consuming 70% less power. Gaming isn’t a shabby business for Nvida. Gaming revenue has climbed at a compounded average annual growth rate of 21% over the last five years on 9% CAGR in units.

Okay, that’s the Nvidia you may know. But importantly it’s not the company that emerges from Nvidia’s most recent company presentations.

Here’s the company in fiscal 2013: 42% of revenue came from chips for PCs and mobile devices (the Tegra family of mobile processors): 52% of revenue came from chips for gaming (X-Box, etc.), datacenters, and autos, and 6% from licensing of intellectual property (to Intel, mostly.)

And here’s the company in fiscal 2016 (that’s basically through the end of 2015): PC and mobile revenue are down to 9% of the total, intellectual property is 6%, and the rest, 86%, is all gaming, data centers, and autos.

Consider these compounded annual growth rates over the last 3 years.

Gaming 30%. Datacenter 40%. Auto 80%.

It turns out that the kind of massively parallel architectures that you need to built to handle graphics processing for massively complex multiplayer games where a chip has to handle input from multiple sources and keep an entire visual world updated in real time is well suited to the world of cloud computing and massive real time datacenter processing, and to the real time needs of the driver of an automobile for navigation, automatic braking, lane guidance and all the rest of the new world of automated driving.

Yep, this maker of graphics processing units for gaming finds itself with chips and systems on a chip ideally suited for two of the fastest growing parts of the technology market–cloud computing and automobiles.

And did I mention that these fastest growing parts of Nvidia carry a higher margin that the old bread-and-butter PC graphics processing business. Gross margins at Nvidia have climbed to 56.8% in fiscal 2016 from 52.3% in fiscal 2013. Operating margins in the same period have gone to 22% from 20%.

These two fastest growing parts of Nvidia aren’t yet the biggest parts of Nvidia. In fiscal 2016 the datacenter business produced $339 million in revenue or 6.8% of the total for the company. Automotive revenue was 6.4% of total revenue or 6.4%.

But one of the nice things about Nvidia as a growth stock is that it’s big enough to generate a lot of cash to use in research & development–$1.2 billion in cash flow in fiscal 2016–but the company is small enough so that a fast growing but still small business like datacenter or automotive can make a difference to the bottom and top lines fairly quickly. This isn’t Intel with its $55 billion in 2015 revenue. Nvidia had revenue of $5 billion in fiscal 2016.

Now on to the tough stuff valuation and timing.

Nvidia isn’t cheap.

If you subtract cash,the stock trades at a PE ratio of 27 times trailing 12-month earnings. Nvidia’s multiple on forecast earnings is 19.2 but, of course, that depends on earnings growth coming in as forecast.

Officially Wall Street is looking for the company to report earnings of 31 cents a share for the next quarter. The unofficial whisper number is 34 cents. That’s not a huge enthusiasm indicator but I do worry that if Nvidia merely beats expectations by a few cents a share, traders looking for momentum will be disappointed and sell the shares off.

And that’s the danger. Do you buy now and risk that sell off? Or hold off until after earnings and avoid the risk is a disappointment but take the risk that Nvidia will jump on a surprise?

I’m going to wait a few days to answer that–until I see what Apple reports tomorrow and whether or not those results create some selling in the entire technology sector that might take a little risk out of Nvidia.

But I definitely am looking to buy. There’s not a lot of growth in the market right now and I’m willing to pay up a bit for it.

On my paid site: Looking for the next profit trend in chip stocks and the fuse on China’s bond bombshell gets shorter

posted on April 21, 2016 at 7:56 pm
stocks up

On my paid site JubakAM.com I aim for a mix of posts on macro trends and on individual stock picks. It’s a strategy called tactical stock picking.

This week the I’ve been looking for sector trends and trying to find a stock pick that embodies the currents in the sector. In the weekly Friday Tricks and Trends post exclusive to my subscription site JubakAM.com http://jubakam.com I took a look at how the decline in PC sales had created a scramble among chip makers to find growth, any growth. This is a trend that extends well beyond Intel. The drop in PC growth has led companies to target mobile–only to see that sector slow–and server chips–only to see the competition heat up. In my post today on the paid site I looked at the recent results from Qualcomm and that company’s forecast of a slowdown in the growth rate of smartphone sales to single digits in 2016. I promised that on Friday I’d identify the best profit opportunity in front of chip makers and pick the stock of a company positioned to exploit that opportunity. (I’ll also make that pick on the free JubakPicks.com site and add it to those portfolios. Subscribers, though, will get a lot more detail on why I like this pick.)

On a macro/macro level, last week I looked at the developing crisis in Chinese corporate bonds and the increasing number of defaults in that market. In a post later tonight I’ll look at the case of a government controlled company that has announced that its bond will stop trading. As you might imagine that has sent shock waves through the Chinese bond market.

That’s what I’m working on at my subscription JubakAM.com site. I think there’s some value to you in passing on the direction of my thinking about the market on that site. Hope so anyway.

Of course, there’s an ulterior motive to sharing this with you: If you decide that you’d like more of my thoughts on the market in my JubakAM.com posts, I’m hoping that you’ll subscribe to my site at JubakAM.com for $199 a year. (By the way, you can get a full refund during the first seven days if you change your mind for any reason.)

Update Synaptics on deal rumors

posted on April 14, 2016 at 7:11 pm

Updated April 14. Shares of Synaptics (SYNA), a maker of touch screen technology, are soaring today on one of those unsourced stories–you know “people familiar with the matter”–that the company’s talks with a Chinese investor group are live again with a target for working out a deal by the end of April.

Synaptics had started discussions about a deal with a state-backed Chinese investment group at the end of 2015. Those talks, with a rumored price of $110 a share, however, were thought to have suffered a fatal blow in January when Philips announced that it had canceled a deal to sell an 80% stake in its Lumileds LED lighting business to an investment group led by China’s GO Scale Capital. The cancellation followed on objections from the U.S. Committee on Foreign Investment in the United States to the sale of the Dutch company’s division to a Chinese investor. The thinking back in January was that the Philips cancellation showed that U.S. regulators were getting more aggressive in examining Chinese acquisitions. If that scrutiny could nix the sale of a Dutch business to a Chinese investment group, the likelihood of approval for a deal to sell a U.S. company with potentially sensitive fingerprint recognition technology was extremely low.

Even though after the Philips cancellation Synaptics and its potential Chinese investors kept talking, a rumored target of announcing a deal by the end of March came and then went without any deal.

The thinking today, however, is that if Synaptics is continuing to talk to a Chinese investment group, the U.S.company must have reasonable confidence that it could get approval for such a deal.

Note all the caveats and assumptions in today’s logic. “If” Synaptics” is talking to Chinese investors in a serious manner, the company “must have received” some indication that regulators would approve the deal.

My thinking on this is that a $110 price would yield a nice short-term profit on these shares that I added to my Jubak Picks portfolio at $92.96 on November 10, 2015. But I don’t mind holding on for longer than that to let the fundamentals of growth at Synaptics push the stock higher, as the company continues to expand markets for its technology beyond smartphones. When I added the stock to my portfolio, I calculated a $115 target price on those fundamentals.

Synaptics is due to report first quarter earnings on April 28.

Cars: The next profit frontier in technology

posted on March 8, 2016 at 2:00 pm

This is my May 5 presentation on technology stocks and trends in the car market from the MoneyShow in Orlando. (It’s something of an experiment.  This uses SlideShare. Let me know how this works for you.)




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